Talk Money with Tony Field - November 11, 2015

The odds have increased of an interest rates cut next month. That was after the latest inflation and housing numbers were released.

The Real Estate Institute says the national median house price fell 5.1 percent last month to $460,000. But it is up 7 percent, or $30,000, from October last year.

There was a $22,000 drop in the median price last month in Auckland (down 3 percent) to $748,250. But the median price in the region is 16.8 percent higher than October 2014 (up $107,750).

"The drop in the number of sales in Auckland in October is the result of a softening of demand over the past few months and the new IRD and bank account rules introduced at the start of October," says Real Estate Institute chief executive Colleen Milne.

She said outside Auckland "we are seeing increasing demand and rising prices as buyers of all types emerge to take advantage of low interest rates. It is further evidence of the halo effect of Auckland-based buyers searching for value in regional markets. During winter and into early spring, the property markets in a number of regions have been far more active than would normally be expected, thus a slowdown or pause is not surprising following this burst of activity".

But economists at Westpac say they were surprised by the decline in prices in Auckland.

"A sharp slowdown in the Auckland housing market has long been a crucial element of our forecast that the OCR will fall to 2.0 percent. Today's data certainly supports our long-held view."

Westpac was not surprised by the drop in sales volumes in Auckland, however, as this had been expected due to the changes in the tax rules.

The economists at ASB are sticking with their prediction the Reserve Bank will cut the official cash rate (OCR) by 0.25 percent to 2.5 percent next month. They say this is because inflation is so weak right now.

As well as the housing data, yesterday also saw the release of the ANZ Monthly Inflation Gauge. It posted a 0.1 percent increase in October. It was the second month in a row that was milder than the usual seasonal increase.

ANZ economists say this "keeps further interest stimulus on the cards".

Price rose 0.4 percent on a three-month rolling basis.

"This is more modest than average quarterly increases for this time of year and is consistent with inflation continuing to track below the inflation midpoint of 2 percent. However, overall prices are not going down, suggesting deflation fears some may have are misplaced."

Rents and construction costs rose. So did airfares, long-distance rail fares and parking fees. GP visits, life insurance premiums and golf green fees all went up in price as well.

Most economists are leaning towards a cut in the OCR next month. But ANZ says it is "agnostic" on whether the cut will be delivered in December or early next year.

Retail spending using electronic cards was almost flat in October. It rose just 0.2 percent (seasonally adjusted). However, that followed a strong September and annual growth in spending of 5.6 percent. If you strip out the fuel and vehicle categories, spending was up 7.6 percent over the past 12 months.

"Although rising unemployment and a bleaker outlook for the economy mean that individual consumers will be less willing to spend, strong population growth will hold up the volume of total spending in the coming year," says Infometrics.

The New Zealand dollar was trading at 65.34 US cents at 7:30am, little changed from last night.

The Kiwi was sitting at 92.98 Australian cents, a rise of 0.29 percent.

It was trading at 43.25 pence, 80.42 Japanese Yen and 60.98 Euro cents.